Middle-Class Military Families Supplement Coverage with Commercial Life Products

First Command Behavior Index Reports

Military servicemembers are increasingly relying on commercial life insurance as a supplement to the group coverage that they receive with their government benefits package.

First Command Financial Services, Inc., Fort Worth, Texas, a financial advisor serving military families, released the findings through their First Command Financial Behaviors Index, a research arm of the company that strives to keep a finger on the pulse of the middle-income market by compiling data pertaining to the American public’s attitudes and the financial activities that those attitudes dictate.

The index found that 63 percent of middle-class military families (senior NCOs and commissioned officers with household incomes of at least $50,000) own term life insurance, up 14 points from last year. The study also found that 48 percent of military families own some type of permanent life coverage, a rise of six points from the previous year.

Active-duty personnel are eligible for Servicemembers’Group Life Insurance (SGLI), a program of low-cost group life insurance. However, once they leave the military, they have to convert their policies to Veterans Group Life Insurance (VGLI) where for the most part, premiums are higher and are based on the age of the insured. At this juncture many military families, if they are insurable, decide to opt for commercial policies in order to increase their coverage. For the most part they seek this coverage through firms that cater almost exclusively to military and ex-military members, such as First Command.

The sale of commercial life insurance products to military members has come under a significant amount of scrutiny over the years with allegations of compulsory briefings on veteran’s benefits by salesman under the guise of financial planners and the use of retired military officers to make sales pitches to young recruits for mutual funds with 50% first-year commissions. Abusive financial services sales practices have been under review since 1974. A bill, S418, known as the Military Personnel Financial Services Protection Act was signed into law in September of 2006. The bill bars the sale of contract mutual funds, which have high fees in their early years and require a lengthy contribution to be of value to the buyer, and would be unsuitable to someone who is being sent into combat or will be moving often from base to base.

The bill also clarifies that military bases fall under the jurisdiction of the insurance department of the state it is located in, and encourages increased communication between state regulators and military authorities.

Those against the sale of supplemental commercial coverage to military members hoped that when President George W. Bush raised the SGLI in May of 2005 to $400,000 from $250,000 the need for supplemental commercial coverage would evaporate. According to The First Command Financial Behavior Index that has clearly not been the case.

Military personnel must still see a degree of attractiveness in these products because the index also found that whole life insurance products are owned by 39 percent of survey respondents, up eight points from last year.

Permanent life insurance is increasingly growing in popularity among middle-class military families. The index revealed that 28 percent of respondents who don’t own a permanent life policy say they are likely to consider purchasing it for their household.

There is a bigger interest in commercial life insurance within the military community than within the general public although the index showed that 45 percent of civilian respondents with similar incomes reported owning term life insurance, up 6 points from the previous year.